Microsoft blocked from buying Call of Duty developer Activision – in huge decision that changes future of games

Deal would give Xbox maker too much power in cloud gaming, Competition and Markets Authority decides

MICROSOFT-NINTENDO (AP)

Microsoft’s attempt to buy Call of Duty developer Activision has been blocked by UK regulators.

The $69 billion deal was set to become the biggest video game acquisition in history. But the controversial deal would give the Xbox maker too much power in cloud gaming and it will not be allowed to go ahead, said the UK’s Competition and Markets Authority (CMA).

Microsoft said that it would appeal the decision, and Activision claimed the decision showed that the “UK is closed for businesses”. The two companies have been fighting against other companies such as Sony, which has argued that the deal would undermine its PlayStation business.

Microsoft is already the biggest operator of cloud gaming services, with the company running up to 70 per cent of the market. If it were able to buy Activision, it would be beneficial for Microsoft to make games such as Call of Duty only available on its cloud services and so “risk undermining the innovation” in the sector, the CMA said.

The CMA had voiced those concerns in an earlier decision in February, and gave Microsoft the option to offer a remedy. It attempted to address the concerns by giving commitments that it would offer Activision games on other cloud services over the course of ten years.

But that remedy had “significant shortcomings” that did not address regulators’ concerns, they said.

Allowing the deal would bring some benefits, such as allowing Activision’s games to come to Microsoft’s Game Pass subscription offering. Overall, though, that would not outweigh the potential harm to consumers – and Microsoft may be incentivised to increase the cost of Game Pass to account for those new games anyway, it noted.

“Gaming is the UK’s largest entertainment sector. Cloud gaming is growing fast with the potential to change gaming by altering the way games are played, freeing people from the need to rely on expensive consoles and gaming PCs and giving them more choice over how and where they play games. This means that it is vital that we protect competition in this emerging and exciting market,” said Martin Coleman, chair of the independent panel of experts conducting the investigation.

“Microsoft already enjoys a powerful position and head start over other competitors in cloud gaming and this deal would strengthen that advantage giving it the ability to undermine new and innovative competitors.

“Microsoft engaged constructively with us to try to address these issues and we are grateful for that, but their proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market.

“Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.”

The deal was being examined by a range of regulators, including in Europe and the US in addition to the UK, and some in other countries have already approved it. But the CMA’s decision will call a halt to the deal – and Microsoft said it would appeal.

“We remain fully committed to this acquisition and will appeal,” said Brad Smith, Microsoft’s vice chair and president. “The CMA’s decision rejects a pragmatic path to address competition concerns and discourages technology innovation and investment in the United Kingdom.

“We have already signed contracts to make Activision Blizzard’s popular games available on 150 million more devices, and we remain committed to reinforcing these agreements through regulatory remedies. We’re especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.”

Lulu Cheng Meservey, Activision’s executive vice president for corporate affairs and chief communications officer, said that the deal showed the “UK is closed for business” and suggested it would hurt the economic prospects of British citizens.

“The CMA’s report today is a major setback for the UK’s ambitions to be a tech hub, and we will work with Microsoft to reverse it on appeal,” she wrote in a tweet. “This report is also a disservice to UK citizens, who face increasingly dire economic prospects, and we will need to reassess our growth strategy in the UK.

“Global innovators large and small will take note that - despite all its rhetoric - the UK is closed for business.”

Last month, the CMA had appeared to agree with Microsoft that the deal was unlikely to damage the console market, and that it would not be incentivised to remove Call of Duty from the PlayStation. But the concerns over the future of cloud gaming remained, and the CMA said that they had not been resolved.